UN Sustainable Development Goals - Goal 16

5 June 2018

In September 2015, the 193 countries of the UN General Assembly adopted the 2030 Development Agenda "Transforming our world: the 2030 Agenda for Sustainable Development". Known as the Sustainable Development Goals (SDGs), the 169 targets which make up the 17 goals provide a framework for countries to guide their path towards a more sustainable future. Ethical Screening is investigating how companies can contribute to The Goals. This blogpost focuses on Goal 16 - Peace, Justice and Strong Institutions.

What is Goal 16?

Sustainable Development Goal 16 commits all actors on the international stage to collaborate to the achievement of Peace, Justice and Strong Institutions. Generally, actions towards this Goal are considered by commentators to be the domain of states, who have the power and are in the best position to create strong institutions for the achievement of peace and justice, both at the internal and international level.

However, a more in-depth analysis of the Goal shows that private actors can have a strong influence on its achievement. This is especially true with regards to targets 16.2 (end abuse, exploitation, trafficking and all forms of violence against and torture of children), and 16.5 (substantially reduce corruption and bribery in all their forms).

How can companies and investors contribute to Goal 16?

With its focus on tackling abuse, exploitation, trafficking and violence, target 16.2 is closely connected to the creation of transparent supply chains. Following the introduction of the California Transparency in Supply Chains Act of 2010, the UK Modern Slavery Act in 2015 and the French Duty of Vigilance Law in 2017, and declarations by other States (such as Australia and Hong Kong) of their intention to enact similar legislation, companies must ensure control over their supply chains.

The risks are particularly high for companies operating in sectors with long and complex supply chains, such as the sale of food products and personal goods, and for those in sectors historically plagued by labour issues, such as construction. A 2018 survey by Focus on Labour Exploitation (FLEX) found that at least a third of London's 100,000-odd European migrant construction workers from nations including Romania and Poland have done jobs for no pay and experienced verbal and physical abuse.

Ethical Screening's analysis has identified a number of companies whose performance on this topic, and therefore contribution to the goal, is positive. Our research focuses on evidence that companies have strived to identify the main areas of risk, and have taken concrete action to address these issues, including setting KPIs to monitor their performance.

Unilever, for example, has published a Modern Slavery Statement where it identified forced labour as one of eight salient human rights issues and has pledged to work to improve conditions for tea estate workers and their families, while Marks and Spencer's Plan A commits the company to taking a lead on scaling-up responsible recruitment and management of third party labour providers and encouraging more effective workplace representation. To improve transparency, in 2016 the company launched an interactive supply chain map, covering its Clothing & Home and Food products. In the construction sector, Marshalls has set the bar high with a strong Modern Slavery statement, a programme of ongoing assessment regarding areas of high risk related to its supply chain, detailed country assessments for the risk of slavery, and the identification of a number of actions to undertake, including employing an external auditing process.

Interestingly, the provisions of Goal 16.2 are closely linked to those of Goal 8.7, committing states and companies to take measures to eradicate forced labour and end modern slavery and human trafficking. This is but one example of the interconnectedness that characterises the SDG.

A second relevant target, 16.5, focuses on tackling corruption and bribery, and here companies' actions can be twofold: on the one side, they should work on improving their internal corporate governance systems, on the other side, they can influence the discussion by engaging with governments and other stakeholders, and participating in think-tanks and industry groups focused on steering international policymaking. While it is widely recognised that corruption is an international issue, coordinated activities at international level are still limited in number and reach. For this reason, a stricter collaboration between investor, companies and state actors is needed.

With regards to internal corporate governance, a 2009 study by Transparency International stated that 'without good corporate governance systems in place, the overall impact of anti-corruption initiatives is reduced and the growth of companies - and the countries where they operate - is undermined'. In the last 9 years, the situation has not changed, to the point that a report by the same organisation in November 2017 still emphasises the role of corporate governance in providing accountability to stakeholders through transparency and public reporting.

In the wake of recent scandals such as the Panama Papers and the Paradise Papers, many companies have begun to publish data on the payments made to governments, together with information about subsidiary companies that are incorporated in low-tax jurisdictions (tax havens) and an explanation for why. This growing list of companies includes mining giant BHP Billiton, Unilever and the Brazilian Natura Cosmeticos, together with the main actors in the Oil & Gas sector, who are obliged to disclose this information under the provisions of the Dodd-Frank Act. In the defence sector, one of the best examples is provided by Raytheon Company. After being hit by a corruption scandal at the close of the last century, the company has developed strong policies and procedures to address the issue, which are continuously reviewed and updated in what Raytheon defines an "Anti-Corruption Sustainment Program".

In case instances of corruption are found, the company must make sure that it completely and openly cooperates with the authorities, as done by Rolls Royce in the occasion of the Deferred Prosecution Agreement reached in 2017 with the Serious Fraud Office. In addition, it is important that the company reviews its internal policies and procedures, strengthening them, in order to reacquire the trust of investors and of the public at large. Reportedly, Rolls Royce spent over £15 million to overhaul its compliance regime, in addition to appointing a new Board and executive team.

Why is Goal 16 important?

Although the power in policy making mainly lies with the States, companies can have relevant influence through lobbying activities and participation in policy talks and discussions aimed at developing programmes and agreements at the national and international level. One such initiative is the recent "Private Sector Partnership for the Rule of Law", a project intended to provide businesses with opportunities to engage in Rule of Law initiatives around the world, and to eventually create a unified private sector voice on the issue.

Corporate action can potentially have a significant influence on these topics, both positively and negatively. On their part, investors have the power to influence companies' activities on these topic, and it is arguably in their best interest to do so. According to Simon Webley, Research Director at the Institute for Business Ethics, 'the cost of corruption can be measured in the level of distrust of the public in your business'. Viewed under this light, corruption creates a risk, and this risk has an effect on investors too. As Lauren Compere, Director of Shareholder Engagement at Boston Common Asset Management said, 'a key part of an investor's job is to know and understand risk. Understanding risk requires access to information. This means greater transparency and requires regular disclosure and uniform reporting from companies'. It is therefore important that investors engage with companies, encouraging them to strengthen their anti-corruption procedures and to increase their transparency, and that they keep their eyes open for any sign of unethical or illegal deals.

Conclusions

Rule of law is crucial for safe, and responsible, investment. In addition to being morally right, it allows for certainty, and foreseeability of results. It is therefore important that investors engage with companies on the topic in a proactive way, ensuring that the necessary changes are made within their governance apparatus. This will ensure transparency and, in the long run, better return on the investment, in addition to widespread societal gains.